Inside Jersey: How to pick the best credit card

If you’re like most consumers, you probably have a few credit cards in your wallet. The average American has 3.7 cards, according to a recent Gallup poll.

And like most consumers, you probably haven’t reviewed your cards to make sure they match your current spending style.

If you haven’t shopped for a new card, this might be a good time to do so because there may be some great deals out there.

Start by examining your spending habits, such as if you pay your bills in full each month or carry a balance. How often you use a card also matters. If it’s your primary payment method, consider a rewards card that will provide benefits every time you use it. If the card mostly sits in a drawer, make sure it doesn’t come with an annual fee.

REWARDS CARDS

Rewards cards generally give you some kind of reward for every dollar you spend. Some offer a dollar-for-dollar reward, while others give perks such as $2 for gas and $3 for grocery purchases, or a higher reward for shopping at certain retailers.

When you accumulate a certain dollar amount, you literally get cash back, either as a check or a deposit to your bank account or as a credit on your statement. Sometimes, you can use the cash to purchase gift cards offered by the credit card.

With “points” credit cards, you’ll earn points that can be used for purchases of specific items offered by the card issuer. The items can range from airline tickets to jewelry. Be careful, however, because points may expire and the products offered could cost more in points than buying the items outright.

Some companies, such as airlines and hotels, offer branded reward credit cards. You can accumulate cash back or points, as well as bonus dollars or points for using the card at the company that issues it. You can spend your points on a wide selection of items or use them for upgrades or free flights or hotel stays.

Then there are other store-branded cards that will give you points, but require you to redeem them at that store.

All these cards have different rules, so you need to carefully read the terms and conditions for each card.

FOR IFFY BORROWERS

While some rewards cards may seem attractive, you may find it hard to choose the card that’s best if you’re not great with credit. And if you tend to keep balances on your cards, the interest rates and fees are far more important than the rewards.

Look for no-frills credit cards with the best interest rates.

If you’re attracted to a card with a low introductory rate or even one with a zero interest rate for a certain time period, you’ll need to be very careful. If you build up a big balance that you’re not able to pay off in full, you could find yourself stuck with a high rate.

Rather than look for a new card, try to pay down your older balances and set cash aside for new purchases. A new card with a clean slate may be too tempting for you and you may just run up another big balance — something you don’t need.

KNOW WHERE YOU ARE

Before you apply for a new card, make sure you take a look at your credit reports, which N.J. residents can get for free once a year at AnnualCreditReport.com.

If you have lots of cards that you don’t use, don’t cancel them yet.

When you cancel a card, you remove the available credit limit from that card from something called your “credit utilization ratio.” This shows lenders how much of your available credit you’re using. Removing a card will change that ratio for the worse and that could mean a temporary blip on your credit score.

This doesn’t mean you shouldn’t consider canceling unused cards, but just make sure you don’t do it when you’re shopping for new credit of any kind.

Happy shopping!

Karin Price Mueller, the founder of NJMoneyHelp.com, writes the Bamboozled consumer affairs column for The Star-Ledger, and the Money and Biz Brain columns for Inside Jersey. Send your money questions to her at Bamboozled@njadvancemedia.com.